Question 1

The diagrams below show the import,export,and net export functions for an economy.  FIGURE 22-1 Refer to Figure 22-1.If actual national income is equal to $2000,then imports are equal to
A)$0.
B)$200.
C)$400.
D)$450.
E)$1000.

Accepted Answer

In the diagram, at an actual national income of $2000, the import function intersects the X-axis at $400, indicating that imports are equal to $400.

Question 2

The table below shows national income and imports.The level of exports is fixed at $300.All figures in the table and in the questions are in millions of dollars.  TABLE 22-1 Refer to Table 22-1.What are the correct values for the level of net exports (a,b,c,and d)at each level of national income?
A)a = $150,b = $50,c = -$50,d = -$150
B)a = -$150,b = -$50,c = $50,d = $150
C)a = $150,b = $250,c = $350,d = $450
D)a = $300,b = $300,c = $300,d = $300
E)not enough data to determine

Accepted Answer

Net exports = Exports - Imports
At national income of $400:
Net exports = $300 - $200 = $100
At national income of $500:
Net exports = $300 - $250 = $50
At national income of $600:
Net exports = $300 - $350 = -$50
At national income of $700:
Net exports = $300 - $450 = -$150 
Therefore, the correct values for net exports are a = $150, b = $50, c = -$50, and d = -$150. This is option A.

Question 3

The AE function for an open economy with government can be written as
A)AE = C + I - G + (X - IM).
B)AE = C + I + G - (X - IM).
C)AE = C + I - G - (X + IM).
D)AE = C + I + S + (X + IM).
E)AE = C + I + G + (X - IM).

Accepted Answer

The correct AE function for an open economy with government includes all components of aggregate demand: consumption (C), investment (I), government spending (G), and net exports (X - IM). Therefore, the correct formula is AE = C + I + G + (X - IM), which is option E.

Question 4

Consider the general form of the consumption function in a simple macro model.Once government and taxes are included in the model,desired consumption can be expressed as ________,where a = autonomous consumption,t = net tax rate,Y = national income,  = disposable income,and MPC = marginal propensity to consume.
A)C = a + MPC(1 - t) 
B)C = a - (1 - t) 
C)C = a + MPC ∙ Y
D)C = a + MPC ∙ t ∙ 
E)C = a + MPC(1 - t)Y

Accepted Answer

The answer of Consider the general form of the consumption...

Question 5

When compared to a simple macroeconomic model (with only consumption and investment),adding government and foreign trade to the AE function causes
A)the autonomous component of AE to increase.
B)the autonomous component of AE to fall.
C)the AE function to become downward sloping.
D)the AE function to become perfectly horizontal.
E)no change in the AE function.

Accepted Answer

Adding government (through government spending) and foreign trade (through exports minus imports) to the Aggregate Expenditure (AE) function increases the autonomous component of AE, as these elements add to the economy's spending independently of its income level.

Question 6

The table below shows national income and imports.The level of exports is fixed at $300.All figures in the table and in the questions are in millions of dollars.  TABLE 22-1 Refer to Table 22-1.What is the marginal propensity to import?
A)0.01
B)0.10
C)1.0
D)10.0
E)not enough data to determine

Accepted Answer

The marginal propensity to import (MPI) is the change in imports divided by the change in income. Since exports are fixed, we can calculate the change in imports as Imports at Y2 - Imports at Y1 = 350 - 250 = 100. The change in income is Y2 - Y1 = 1000 - 500 = 500. Therefore, MPI = 100/500 = 0.1. The best answer is B.

Question 7

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.The marginal propensity to spend on national income,z,is
A)0.655.
B)0.760.
C)0.773.
D)0.840.
E)0.920.

Accepted Answer

The marginal propensity to spend (z) is calculated as the sum of the marginal propensity to consume (MPC) and the marginal propensity to import (MPM) subtracted from 1. Here, MPC is 0.84 and MPM is 0.08, so z = 0.84 - 0.08 = 0.76.

Question 8

The table below shows national income and imports.The level of exports is fixed at $300.All figures in the table and in the questions are in millions of dollars.  TABLE 22-1 Refer to Table 22-1.In this economy,if actual national income increases by $600,the level of imports will
A)rise by $30.
B)rise by $60.
C)rise by $100.
D)fall by $100.
E)not change.

Accepted Answer

According to the table, for every $100 increase in national income, imports increase by $5. Therefore, if national income increases by $600, imports will increase by $30 (=$5 × 6). Thus, the correct option is (B).

Question 9

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.8 and a net tax rate of 20% of national income,the marginal propensity to consume out of national income is
A)0.36.
B)0.64.
C)0.80.
D)0.90.
E)1.00.

Accepted Answer

The marginal propensity to consume out of disposable income (MPCd) is given as 0.8. This means that for every increase in disposable income, consumption increases by 0.8.

Let the gross national income be Y and the net tax rate be t. Then disposable income (Yd) is given as:

Yd = Y(1-t)

The marginal propensity to consume out of national income (MPC) is given as the change in consumption over the change in national income.

MPC = ΔC/ΔY

We can express the change in consumption (ΔC) as a function of the change in disposable income (ΔYd) and the MPCd as follows:

ΔC = MPCd * ΔYd

Substituting for Yd, we get:

ΔC = MPCd * Δ(Y(1-t))

ΔC = MPCd * Y * Δ(1-t)

ΔC = -MPCd * Y * t

The negative sign indicates that taxes reduce disposable income and hence consumption.

Substituting the given values, we get:

MPC = -0.8 * Y * 0.2

MPC = -0.16Y

This means that for every increase in national income, consumption decreases by 0.16. The MPC out of national income is therefore 1 - 0.16 = 0.84.

Alternatively, we could have used the formula for the MPC out of national income directly:

MPC = MPCd / (1-t)

Substituting the given values, we get:

MPC = 0.8 / (1-0.2)

MPC = 0.8 / 0.8

MPC = 1 - 0.2

MPC = 0.8

This confirms our earlier result.

Question 10

The diagrams below show the import,export,and net export functions for an economy.  FIGURE 22-1 Refer to Figure 22-1.The net export function for this economy can be expressed as
A)NX = 2250 - 450(Y).
B)NX = 450 - 0.2(Y).
C)NX = 2250 - 450.
D)NX = 0.2Y.
E)NX = 2250 - .2(IM).

Accepted Answer

The answer of The diagrams below show the import,export,and net...

Question 11

The table below shows national income and imports.The level of exports is fixed at $300.All figures in the table and in the questions are in millions of dollars.  TABLE 22-1 Refer to Table 22-1.On a graph of the net export function for this economy,at what level of Y would the NX function intersect the horizontal axis?
A)at $0
B)at $2000
C)at $3500
D)at $4000
E)at $5000

Accepted Answer

The net export function can be calculated by subtracting imports from exports, which in this case would be:
NX = Exports - Imports
NX = 300 - (0.1Y - 100)
NX = -0.1Y + 400
Setting this equal to zero to find the level of Y where NX intersects the horizontal axis gives us:
-0.1Y + 400 = 0
Y = 4000
Therefore, the answer is D: at $4000.

Question 12

Consider an open economy that has a marginal propensity to import equal to 0.30.If national income rises by $2500,imports will rise by
A)$30.
B)$300.
C)$750.
D)$7500.
E)$8333.

Accepted Answer

The marginal propensity to import (MPC) of 0.30 means that for every $1 increase in national income, $0.30 will be spent on imports. Therefore, for a $2500 increase in national income, the increase in imports will be 0.30 x $2500 = $750. Thus, the answer is C.

Question 13

In our simple macro model with government,consider the equation Y_D = (0.75)Y.Which of the following statements about this equation is correct? A)If disposable income increases by $0.75,then national income increases by $1.00 and total tax revenue rises by $0.75. B)Net tax revenue is equal to 75% of national income. C)If national income increases by $1.00,then disposable income increases by $0.75 and net tax revenue increases by $0.25. D)Net tax revenue is equal to 25% of disposable income. E)If national income increases by $1.00,then disposable income increases by $0.25 and net tax revenue increases by $0.75.

Accepted Answer

The equation suggests that disposable income (YS) is 75% of national income (Y), implying that the remaining 25% of national income is taken as tax. Therefore, if national income increases by $1.00, disposable income increases by $0.75 (75% of $1.00), and net tax revenue increases by $0.25 (the remaining 25% of the $1.00 increase in national income).

Question 14

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.9 and a net tax rate of 10% of national income,the marginal propensity to consume out of national income is
A)0.09.
B)0.72.
C)0.81.
D)0.90.
E)1.00.

Accepted Answer

The marginal propensity to consume out of national income can be calculated as:
MPC(Y) = MPC(DI) × (1 - Net tax rate)
= 0.9 × (1-0.1)
= 0.81

Therefore, the answer is C.

Question 15

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.7 and a net tax rate of 30% of national income,the marginal propensity to consume out of national income is
A)0.49.
B)0.58.
C)0.70.
D)0.90.
E)1.00.

Accepted Answer

The marginal propensity to consume out of national income is calculated by multiplying the marginal propensity to consume out of disposable income (0.7) by (1 - tax rate). Given a tax rate of 30%, this is 0.7 * (1 - 0.3) = 0.7 * 0.7 = 0.49.

Question 16

Consider a simple macro model with a constant price level and demand-determined output.The marginal propensity to spend out of national income,z,can be expressed as ________ (where t = net tax rate and m = marginal propensity to import).
A)z = MPC(1 - t - m)
B)z = tY - mY
C)z = MPC - (1 - t- m)Y
D)z = MPC - (1 - t - m)
E)z = MPC(1 - t)- m

Accepted Answer

The marginal propensity to spend out of national income, z, can be expressed as z = MPC(1 - t) - m. This formula takes into account the marginal propensity to consume (MPC) adjusted for the net tax rate (t), and subtracts the marginal propensity to import (m), reflecting how much of each additional unit of income is spent domestically after taxes and imports are considered.

Question 17

The diagrams below show the import,export,and net export functions for an economy.  FIGURE 22-1 Refer to Figure 22-1.If actual national income in this economy is equal to $1000,then net exports are equal to
A)$90.
B)$200.
C)$250.
D)$375.
E)$400.

Accepted Answer

Net exports is the difference between exports and imports. From the diagram, at $1000 national income level, exports are $500 and imports are $250. Thus, net exports = $500 - $250 = $250.

Question 18

In our simple macro model with government,consider the equation T = (0.2)Y.Which of the following statements about this equation is correct?
A)Total tax revenues are equal to 20% of disposable income.
B)Total tax revenues are equal to 20% of real GDP.
C)Net tax revenues are equal to 20% of disposable income.
D)If national income increases by $1.00,then net tax revenue increases by $0.20.
E)If total tax revenue increases by $0.20,then national income increases by $1.00.

Accepted Answer

If national income increases by $1.00, then net tax revenue increases by $0.20.

Question 19

Suppose exports (X)= 100,real GDP (Y)= 500,and imports are equal to mY,where m is the marginal propensity to import.Net exports would be equal to zero if the marginal propensity to import were
A)1%.
B)5%.
C)10%.
D)20%.
E)50%.

Accepted Answer

The answer of Suppose exports (X)= 100,real GDP (Y)= 500,and...

Question 20

In our simple macro model with government and foreign trade,the marginal propensity to consume out of disposable income is ________ whereas the marginal propensity to consume out of national income is ________.
A)MPC; MPC(1 - t)
B)MPC(1 - t); MPC
C)MPC(1 - t)- m; MPC(1 - t)
D)MPC; MPC(1 - t)- m
E)MPC(1 - t); MPC(1 - t)- m

Accepted Answer

MPC is the marginal propensity to consume out of disposable income, and MPC(1 - t) is the marginal propensity to consume out of national income.

Quiz 22: Adding Government and Trade to the Simple Macro Model

The diagrams below show the import,export,and net export functions for an economy. FIGURE 22-1 Refer to Figure 22-1.If actual national income is equal to $2000,then imports are equal to

The table below shows national income and imports.The level of exports is fixed at $300.All figures in the table and in the questions are in millions of dollars. TABLE 22-1 Refer to Table 22-1.What are the correct values for the level of net exports (a,b,c,and d) at each level of national income?

The AE function for an open economy with government can be written as

When compared to a simple macroeconomic model (with only consumption and investment) ,adding government and foreign trade to the AE function causes

The table below shows national income and imports.The level of exports is fixed at $300.All figures in the table and in the questions are in millions of dollars. TABLE 22-1 Refer to Table 22-1.What is the marginal propensity to import?

Consider a simple macro model with a constant price level and demand-determined output.The equations of the model are: C = 150 + 0.84Y,I = 400,G = 700,T = 0,X = 130,IM = 0.08Y.The marginal propensity to spend on national income,z,is

The table below shows national income and imports.The level of exports is fixed at $300.All figures in the table and in the questions are in millions of dollars. TABLE 22-1 Refer to Table 22-1.In this economy,if actual national income increases by $600,the level of imports will

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.8 and a net tax rate of 20% of national income,the marginal propensity to consume out of national income is

The diagrams below show the import,export,and net export functions for an economy. FIGURE 22-1 Refer to Figure 22-1.The net export function for this economy can be expressed as

Consider an open economy that has a marginal propensity to import equal to 0.30.If national income rises by $2500,imports will rise by

In our simple macro model with government,consider the equation Y_D = (0.75) Y.Which of the following statements about this equation is correct?

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.9 and a net tax rate of 10% of national income,the marginal propensity to consume out of national income is

Consider a consumption function in a simple macro model with government and taxes.Given a marginal propensity to consume out of disposable income of 0.7 and a net tax rate of 30% of national income,the marginal propensity to consume out of national income is

Consider a simple macro model with a constant price level and demand-determined output.The marginal propensity to spend out of national income,z,can be expressed as ________ (where t = net tax rate and m = marginal propensity to import) .

The diagrams below show the import,export,and net export functions for an economy. FIGURE 22-1 Refer to Figure 22-1.If actual national income in this economy is equal to $1000,then net exports are equal to

In our simple macro model with government,consider the equation T = (0.2) Y.Which of the following statements about this equation is correct?

Suppose exports (X) = 100,real GDP (Y) = 500,and imports are equal to mY,where m is the marginal propensity to import.Net exports would be equal to zero if the marginal propensity to import were

In our simple macro model with government and foreign trade,the marginal propensity to consume out of disposable income is whereas the marginal propensity to consume out of national income is .